Here is a brief discussion of the criteria (starting with the six federal ones first):
1. Training Similar to an Educational Environment. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school (the student is under continued and direct supervision by employees of the business). An unpaid internship must serve as an educational exercise that applies old and new skills to real-world scenarios. As such, businesses offering unpaid internships should create an instructional environment that offers interns opportunity to learn skills, without necessarily completing integral business functions. The program should welcome participants to take their time understanding and completing their tasks, while also learning from their mistakes. Internships that offer educational credits, whether through third party or in-house classes, as well as instructional supervision of interns while they complete tasks, comply with this first criterion.
2. Benefit of the Trainee. The training is for the benefit of the interns. Such placements are not made to meet the labor needs of the business. The unpaid intern must be the primary beneficiary of the internship, while the employer may get some tangential benefits. If the employer’s sole focus is on the intern’s development throughout the training program, then the second criterion is met. Moreover, an intern’s receipt of college credit is a strong indicator of the beneficial aspect of the internship program.
3. Displacement of Regular Employees and Close Supervision. The trainees or students do not displace regular employees, employees have not been relieved of assigned duties, and the students are not performing services that, although not ordinarily performed by employees, clearly are of benefit to the business. Any work they may do is performed under close supervision. In determining whether an internship program is lawful, the NY Department of Labor may compare the supervision given to employees with that given to the interns. If the supervision is heavier on the interns and significantly lighter on the employees, then the program will pass this criterion. Furthermore, an internship that involves job shadow opportunities, where interns can closely observe how employees work, will be evidence of a lawful unpaid internship.
4. Employer Advantage. The employer that provides the training derives no immediate advantages from the activities of the trainees or students, and on occasion, operations may actually be impeded. The employer’s motivation for offering the unpaid internship must not be premised on acquiring a benefit or advantage. Instead, the employer must be willing to dedicate its resources for providing a benefit to the trainee in the form of developing the trainee’s work skills or substantive knowledge. Tangential benefits that an employer may get are fine, so long as they result from the employer’s efforts to train the interns.
5. Job Entitlement. The trainees or students are not necessarily entitled to a job at the conclusion of the training period and are free to take employment elsewhere in the same field. An unpaid internship program should be of fixed duration, and cannot foster an entitlement to a salaried job after completion of the program. The interns should sign a contract acknowledging that they do not expect future employment. Although written agreements are given little weight by the NY Department of Labor, they can help satisfy this criterion.
6. Wage Entitlement. The trainees or students understand and have been notified in writing that they are not entitled to wages for the time spent in training and are not considered to be employees for minimum wage purposes. Prior to commencement of the internship, all interns should be given a written notice that the internship is unpaid.
The New York Department of Labor has added five more criteria to the list, requiring that all of the federal plus the five New York criteria be satisfied:
7. Knowledge and Expertise of Trainers. Any clinical training is performed under the supervision and direction of individuals knowledgeable and experienced in the activities being performed. Additionally, the employees must be competent enough to provide instruction and training to the trainees, as would a teacher in a classroom.
8. Employee Benefits. The trainees or students do not receive employee benefits. Benefits include, but are not limited to, health and dental insurance, pension or retirement accounts, or discounted or free employer goods or services. If the internship is affiliated with a third party instructional program, then a weekly stipend is permissible.
9. Generalized Training. The training is general, so as to qualify the trainees or students to work in any similar business, rather than designed specifically for a job with the employer offering the program. To comply with this requirement, the training should be general enough to allow the intern to obtain work in the same field with a different employer in the future.
10. Screening Process. The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program. The employer’s screening process cannot resemble the process by which it would choose employees. Instead, an applicant for the internship program must be a good trainee candidate in that the employer feels comfortable instructing him or her, rather than placing the applicant within a certain role in the business. The intern recruitment process must be completely independent from the employer’s employee recruitment.
11. Advertisements, Postings, and Solicitations. Advertisements for the program are couched clearly in terms of education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment. Any advertising or solicitation conducted by the business for the internship program must clearly indicate, so as to avoid any misunderstanding, that the program is educational and only offers a training opportunity. Any incidental stipends generally should not be included in the advertisements, postings or solicitations.
If all eleven criteria are met, the individual is an intern, gaining valuable hands-on experience and is not an employee. However, in practice, some of these criteria are hard (if not impossible) to meet. In my opinion, #4 above may be the most difficult one to satisfy once the results of on-the-job training start to materialize. The federal Department of Labor has confirmed that in these difficult economic times their particular focus is on preventing employers from taking advantage of the unemployed, who are often willing to work for free just to get “a foot in the door.” Therefore, extreme caution should be exercised when hiring unpaid interns.
This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.